ALA Financial Management and Billing Flashcards
6 cards from real ALA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 ALA Financial Management and Billing flashcards as text
Which billing method charges clients a set fee per month regardless of hours worked?
Answer: Retainer billing
A retainer arrangement charges a fixed monthly fee in exchange for a defined scope of legal services.
Under the ABA Model Rules, which of the following makes a legal fee unreasonable?
Answer: Charging for work not performed
Model Rule 1.5 requires that fees be reasonable and prohibits billing for services not actually rendered.
What does a law firm's realization rate measure?
Answer: Percentage of billed hours actually collected
The realization rate is the percentage of billed amounts that are ultimately collected from clients.
Which document summarizes a law firm's revenues, expenses, and net income over a reporting period?
Answer: Income statement
An income statement (profit and loss statement) reports revenues and expenses to show net income or loss for a period.
What is the purpose of a trust account in a law firm?
Answer: To hold client funds separate from firm operating funds
Trust accounts (IOLTA) must hold client funds separately from firm funds to prevent commingling, as required by state bar rules.
Which financial metric indicates how quickly a firm collects outstanding invoices?
Answer: Days Sales Outstanding (DSO)
DSO measures the average number of days it takes a firm to collect payment after an invoice is issued.